Eastern Accounts

Eastern and Western Accounts are two different team methods in which underwriters or stock brokers or investment bankers sell securities to their constituency. And that’s a $5 word for…mutual funds…hedge funds…and just generally wealthy people. "Team" is only a notional thing on Wall Street…and the line between the two types of teams gets drawn clearly in a Western v. Eastern style of selling.

Think: the Mississippi River. A Western account is a divided account. What does that mean? Well, like the Old West, this style agreement is, more or less, "every man, woman or other for him-her-or-itself"... and since, in most deals, there are multiple syndicate partners, “who is responsible to sell” is what really matters.

So in any given deal, when the partners sign up to bid for the business to take whatever.com public...it is those partners in a Western style account who are each on the hook to sell whatever amount of shares or dollar volumes they have committed to sell. In other words...you break it, you bought it. Or rather, you bid for it, you own it.

In a Western account, the allegory is the cowboy who has his own set of 28 cows he feeds, clothes, manages, and provides a social life for, all on his own. At the other end of the country...lives the Eastern style of account arrangement. Not sure what it is about East Coasters; maybe it’s the history of unions there, but they all seem to want to work together. Go figure.

Eastern account syndicates oblige members to sell not only their own allotment, but also the amount that is not sold by other syndicate members. That is, each individual member is not only on the hook to sell the shares they have committed to sell, but they are also responsible for selling the shares of the other players in their syndicate.

You can imagine that, for a company nervous about getting all of their shares placed properly, they would lean hard on the investment bank to adopt an Eastern style team sales approach instead of a Western one. Regardless of Eastern or Western style deals…the most important element in an offering getting properly placed is that the bankers get paid.

As long as the contract is set up so that the banker only makes money if a successful deal happens, usually everyone selling securities is kept fat and happy. The same may not necessarily be said for the people who bought them...